Quicken Loans Inc., one of the top mortgage lenders in the country, is currently defending its 25-year reputation regarding the company’s business strategies in a federal court case in Detroit.
The Minneapolis-based law firm Nichols Kaster PLLP has filed a lawsuit where former employees are accusing Quicken Loans executives of being abusive toward their workers and not paying them fairly. The employees, who worked at Quicken Loans from 2004 to 2007 during the mortgage boom, said they were forced to work extended hours targeting clients for deals that they did not want or need and falsifying borrowers’ incomes on loan applications.
The lawsuit claims Quicken of fraud by making employees use high-pressurized sales tactics against vulnerable homeowners and misleading borrowers about their loans to push through bad deals, according to the Center for Public Integrity.
Dan Gilbert, the founder and chairman of Quicken Loans, said the employees who filed the lawsuit worked at the company for four to five months. He said the workers were paid a base salary between $20,000 to $30,000 as well as commission, which could reach approximately six figures.
Gilbert said this lawsuit is completely false and that is the main reason why his company is following their corporate strategy of “doing the right thing” by fighting these accusations in court.
“It is important to stand up and not settle with a business extortion looking for a free ride from naive and former employees looking to get ransom,” Gilbert told National Mortgage News. “What these attorneys are doing is immoral and unethical. We have decided to take a stand to prevent other companies in the future from being sued for the same reasons that we are currently facing.”
In a sworn statement for the lawsuit against his former employer, Michael Pikora said managers recommended salespeople to boost their commissions by charging customers higher interest rates on a loan.
“We locked the customer into a higher interest rate, even if they qualified for a lower rate, and rolled hidden fees into the loan,” Pikora said. “The worse the client’s situation was, and the lower their credit, the easier it was to charge excessively high rates.”
Nicole Abate, a loan consultant for Quicken in 2004 and 2005, said she was told by managers to push borrowers to use adjustable-rate mortgages.
“I could have offered him a home equity line of credit to pay these bills out, instead I sold him an interest-only ARM that refinanced his entire mortgage,” said Abate, pertaining to a customer who had cancer and needed to pay medical bills. “This was not the best Quicken loan product for him, but this was the one that made the company the most money.”
Quicken said mortgage bankers’ compensation is deliberately structured to prevent “product steering” and the allegations by Pikora and Abate are not true. According to Quicken, the primary drivers that determine the price for a loan include an individual borrower’s FICO/credit scores and the proposed loan amount as a percentage of the value of the current appraised value of the property they will be mortgaging.
According to former employees, another way borrowers were hustled was a sales strategy known as “bruising.” One former employee said the goal of this technique was to find negative information on a borrower’s credit report that could be used against them, forcing them to do business with Quicken fearful of not receiving a loan from another mortgage lender.
Court documents in the lawsuit claim that Quicken also embellished a borrower’s finances on a stated-income loan, which does not require any documentation of an individual’s income.
Pikora said in his statement that he would quadruple a possible borrower’s earnings from $30,000 to $120,000. Abate said she was told from her sales director to “simply pick an income level that would be approved by underwriting rather than use the customers’ actual income.”
Like all other mortgage lenders, Quicken said it participated at that time in a limited number of loans that used stated income as an underwriting option, but these loans are no longer available. Before issuing a loan, the company obtained objective market comparables using independent salary tools for all employment positions and categories when validating the reasonableness of a borrower’s stated income in relation to their specific occupation.
Quicken also took into account a client’s overall credit profile when assessing the reasonableness of the specific income that was stated by the borrower. Before closing the loan, Quicken conducted a verbal verification that employment of an individual borrower matched the employment status listed on the borrower’s loan application.
This lawsuit is not the first case against the mortgage lender. Last February, a West Virginia judge ruled that Quicken Loans misled the appraisal value for a homeowner by inflating the value of her home by nearly 300% from less than $50,000 to $181,7000. The judge called Quicken Loans’ conduct in this case “unconscionable” and that the company “ignored obvious flaws.”
The Center for Public Integrity said at least seven other lawsuits, five in West Virginia and two in Michigan, have been filed against Quicken Loans accusing the company of using false appraisals to approve loans.
Quicken said there is no fraud in any of these cases because the company followed standard mortgage lending practices. In the West Virginia case, Quicken agreed to a proposed loan with the borrower for $144,800 and then hired an independent licensed appraiser to determine the market value for the 4,200-square-foot colonial.
After making two payments on the new mortgage, the borrower discovered the “flaws” in her loan due to the incorrect assessment by the appraiser. The borrower sued the appraiser and the lender. The borrower and the appraisal firm reached a settlement of $700,000 and the judge found Quicken to be liable for $18,000 in damages, canceled the entire note and mortgage translating to an additional $144,000 to the plaintiff, and the lender is liable for “punitive damages” and attorney fees to the borrower. The borrower is asking the court for $2.5 million in punitive damages and $625,000 in attorney fees.
Quicken claims that it followed requirements in the Home Valuation Code of Conduct to not have any influence over the assignment of the appraiser to control the value for a property that could be inflated.
Gilbert said Quicken has always followed industry standards when working with its clients, which is evident in J.D. Power and Associates recent survey ranking Quicken Loans as the top home loan company in the country in “customer satisfaction.” In this survey, Quicken received the highest scores for the quality and convenience of the mortgage application process, the ease and speed of loan closings, and keeping clients updated throughout the whole process.
“For over 25 years, Quicken has a reputation of not committing any type of fraud,” Gilbert said. “We have and will continue to follow all labor regulations and laws pertaining to mortgage lending. Our mortgage lender company has never participated in using subprime loans and our business practices have gotten us to where we are today.”
